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LET GREECE TAKE A EUROZONE 'HOLIDAY'
By Martin FeldsteinPublished: February 16 2010 20:07 | Last updated: February 16 2010 20:07
Loan guarantees or temporary credits from Germany and France may allow Greece to avoid a refunding crisis later this spring. But temporary financial patches will not deal with the real problem: Greece's budget deficit of 13 per cent of gross domestic product. To prevent an exploding ratio of government debt to GDP, Greece needs to cut future annual spending and increase its future taxes in a com­bination equivalent to at least 10 per cent of GDP.
Unfortunately, such a fiscal contraction would sharply increase unemployment, already at a painful 10 per cent; and political opposition makes such action impossible.
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